Where do open source companies come from? That's not a trivial question, for free software startups can arise in all sorts of ways. You might create a company around someone else's software (as Red Hat, say, did); build one on software you've written yourself (like Jboss); pay people to write something from scratch (Alfresco); hire the creator of a program and use their software (Jaspersoft); or put together pre-existing projects to create something new.
The last of these is the route that Richard Daley and his four co-founders chose when they founded Pentaho (yes, penta- as in “five”, with the accent on the second syllable, apparently). Rather like Alfresco, which was set up by veterans of the Enterprise Content Management world, Pentaho was formed by people who had already launched and sold a couple of (proprietary) startups in the area of Business Intelligence.
What's interesting is that third time around, in 2004, these battle-hardened executives saw open source as a way to do things differently, and to achieve something new: to obtain a global reach, and overcome many of the traditional technical and financial barriers facing startups. That meant they needed to decide on a business model that accommodated giving away stuff and making money, and they chose a fairly classical system of offering a “community version” for free, and then selling enterprise versions that add certain features.
However, that community version is not simply abandonware: support is available, and new customers are not pressured to move on to the enterprise version if they're happy with the free one, Daley says. That seems to be working both in terms of gaining paid-for business and keeping the community happy: Daley told me that it has around 45,000 “active” members – that is, people that do something rather than just visit. The community also contributes to the overall project – mostly QA, but also bug-fixes.
Pentaho's products go up against some big names in this space: SAP, IBM and Oracle. As usual, the open source solution comes in much cheaper than the proprietary equivalents – Daley claims around 80% cheaper, probably a typically saving for open source companies compared to their closed-source rivals. Interestingly, Pentaho is also up against an established open source rival: Jaspersoft. Naturally, Daley believes his offering is better, at least in terms of the breadth of its in-house modules.
That open source competition is unusual: typically, one free software company dominates a particular sector. It's probably a sign of a healthy ecosystem if two large players can co-exist in it, and suggests that whatever their origins, open source companies are now well established and thriving.